Harsh truths about our national finances

WEDNESDAY, AUGUST 29: Since November 10, 1998, Bermuda has had only two Finance Ministers, with two very different management styles and two different national consequences.

From November 1998 until January 2004, Eugene Cox managed Bermuda’s national finances. He was Bermuda’s sixth Minister for Finance. Mr Cox took over a Government administration that, until 1998 had always run a balanced budget. This meant that over any five or ten year period, revenue generally equaled spending.

In the five years between 1st April 1999 and 31st March 2004, under Mr Cox’s management, Government took in a five year total of $3,222.3 million. In that same five-year period, under Mr Cox’s management, Government spent $3,252.2 million; or $29.9 million (one percent) more than was taken in.

During that time, under Mr Cox’s management, Bermuda’s National Debt was reduced by $25 million, from $144.6 million down to $119.5 million.

Like his five predecessors, Mr Cox was an ‘in control’ Minister for Finance.

On 1st April 2004, Bermuda had a seventh Minister for Finance. In the five years between 1st April 2004 and 31st March 2009, under this seventh Minister’s management, Government took in a five-year total of $4,359.6 million. In that same five-year period, under this Minister’s management, Government spent $4,938.4 million; or $578.8 million (13 percent) more than it took in.

During that time, under this Minister’s management, Bermuda’s National Debt grew by $362.9 million. Debt rose from the $119.5 million that Mr Cox handed over, and shot up to $482.4 million — four times what it had been just five years before.

In the next three years, between 1st April 2009 and 31st March 2012, still under the seventh Minister’s management, Government’s three year revenue total was $2,784.0 million.

However, in that same three-year period, under this seventh Minister’s management, Government spent $3,506.5 million; or $722.5 (26 percent) more than it took in. During these three years, National Debt rocketed from the $482.4 million of 2009 to its March 2012 reported high of $1,236.7 million — meaning $754.3 million in freshly added debt in just three years.

Eight years under the seventh Minister for Finance’s management saw a total ($362.9m + $754.3m) $1,117.2m in added National Debt — over $10 million in freshly added Debt each month.

The Minister for Finance holds the second most important and powerful post in national politics. In June 2009, the seventh Minister for Finance publicly described herself as “politically neutered”. In January 2010, the seventh Minister for Finance publicly described herself as a “cog in the wheel”.

These self-descriptions are in stark contrast to the ‘in control’ style of the sixth and all other Ministers for Finance.

For 40 years — more than a generation — from 1968 to March 31st 2007, the Bermuda Government had always ended every Financial Year [FY] with “cash-in-the-bank”. Under the seventh Minister for Finance, the Bermuda Government actually ran out of cash. From 31st March 2008 until now, the Bermuda Government has been cash-strapped and dependent on bank overdrafts.

Thirteen years of audited or reported FY figures display the difference in financial management styles and national consequences.

The chart above shows the result of the sixth Minister for Finance’s five years of management. The small differences between the spending and revenue bars confirm his close control. Three overspent FY’s are balanced by two under-spent FY’s. The over or under spend is never greater than nine percent (2000/01). Note what happened with National Debt.

The chart above shows the result of the seventh Minister for Finance’s management. Eight consecutive FY’s of overspending. The overspend rises from two percent in FY 2004/05, hits 26 percent in 2008/09, and climbs to a highest ever 30 percent in FY 2011/12. Note what happened with National Debt.

The seventh Minister for Finance is now halfway through a ninth year (2012/13) of managing Bermuda’s national finances. National Debt in July 2012 is reported as $1,416 million.

In August 2012, there has been no change in the Seventh Minister’s style of financial management.

• Note: Figures for Apr 1999 to Apr 2005 are from the Financial Statements audited by the Auditor-General. From Apr 2006 to Apr 2011, from the June Bond Prospectus. For Apr 2012, from the February 2012 Budget Statement and the Appropriations Act 2012.